Greencore pre-tax profits fall 3%

Greencore has reported a 3 per cent drop in first-half pre-tax profits, hit by the impact of higher raw material costs, writes Jane O'Sullivan, Markets Correspondent

Profit before tax slipped to €30.1 million from €31.1 million a year earlier, despite a 4 per cent rise in like-for-like sales growth.

The group is confident, however, of a successful full-year outcome as price increases put through to offset the higher raw material costs start to feed through in the second half. The lag in recovering the price increases cost the company €5 million in the first-half, however.

Greencore chief executive Mr David Dilger described the inflationary environment faced by the sector in the first half as "extraordinary".

Average input costs were more than 5 per cent above prior year levels but were even higher in certain categories. Mr Dilger noted that flour prices were up by 15 per cent while egg prices rose by more than 50 per cent.

"We did well to limit the damage to pre-tax profit to €1 million," he said.

A strong contribution from associates, up 17 per cent to €3.4 million, and a 21 per cent reduction in net interest costs to €17.3 million as the company continued to pay down its debt, helped to contain the impact of higher input prices.

Earnings per share slipped by 5 per cent to 13.4 cents while the company maintained its interim dividend at 5.05 cents per share.

Mr Dilger said that, "despite the raw materials glitch, momentum in the business is unchanged from before".

The group's convenience food business continued to perform strongly with like-for-like sales growth of 6 per cent, rising to 9 per cent in its chilled food division. The cost to the division of higher raw material prices totalled €17.5 million, knocking operating profits to €24.5 million from €29.6 million last year.

But price increases worth €17 million on an annualised basis have been achieved, recovering most of the inflationary impact.

Its pizza business, which has been a laggard in recent years, is back on a sound footing with sales growth and market growth on the top of the agenda, Mr Dilger said. Greencore has plans to launch a microwaveable pizza in July, a first in the UK food industry.

Meanwhile, the company's ingredients and agribusiness division continued to generate cash for the group, growing like-for-like operating profit by 2 per cent to €20 million.

The company continued to make progress in reducing its debt. Net debt at the end of March was €461 million, €36 million below the year-earlier level.

Separately, Mr Dilger spent more than €85,000 yesterday, exercising 40,000 options over Greencore shares at €2.13 each, leaving him with a paper profit of €34,000. Greencore shares closed two cents higher at €2.98 on the Irish Stock Exchange last night.